Digital Title Fraud Fight Makes Case for ELT

If ever there was a case for moving from paper vehicle titles to an electronic system, advocates might point to a recent occurrence in Michigan.

According to the Combined Auto Theft Unit in Grand Rapids, Mich., three area men were arrested in late March for allegedly erasing lien holder information on titles in order to take out multiples loans on the same vehicle.

Local media outlets reported the suspects sought loans for vehicles that were no more than $2,500. However, loans were obtained for up to six times the value of the autos. In some cases, the loans were secured for nearly $14,000, according to police officials.

The scam began in mid-December, ran for three months and allegedly bilked nine credit unions and banks out of at least $200,000, according to the CATU. The names of the financial institutions were not released.

Among the vehicles obtained by the three suspects were a 2007 Chevrolet pickup, a 2005 Cadillac and a 2000 Chevrolet pickup.

Police officials said some of the money obtained was used to support a gambling habit. The suspects are set to be charged with conducting criminal enterprises.

According to the Consumer Federation of America, title-related car fraud costs ­consumers up to an estimated $11.3 billion each year. Criminals involved in domestic auto theft enterprises are often perpetrators of violent crimes, such as homicide and drug trafficking, law enforcement investigation data from the National Motor Vehicle Title Information System has shown. The NMVTIS is an electronic system designed to protect consumers from fraud and unsafe vehicles and to keep stolen vehicles from being sold by working with law enforcement agencies.

While figures may be hard to track, the amount of title-related fraud incidents that cause financial losses for lenders might be higher than the $11 billion impact on consumers.

One way some states are hoping to significantly curtail those losses is adopting an electronic lien and title system. Instead of a state’s department of motor vehicles mailing a paper title to a financial institution, an electronic lien is stored.

“ELT would have absolutely prevented what happened in Michigan,” said Larry Highbloom, president of VINTek, a Philadelphia-based provider of automotive collateral management services including ELT services for credit unions and other lenders. “ELT fights fraud because there’s not a paper title while the lien is active.”

Highbloom emphasized ELT would only reduce risk for titles moved to an electronic system.

Eighteen states now require lenders to use ELT. Georgia and Florida were the latest to make the transition in January. Highbloom said Iowa may be the next.

In Michigan where the alleged scam took place, paper titles are sent to consumers even with a lien, Highbloom said. This type of arrangement can present more opportunities for deception because of the paper titles. However, Michigan is currently looking at strategies to reduce this fraud, he added.

Still scammers are engaging in crimes such as lien release fraud, Highbloom said. The perpetrators will go to a financial institution’s website, take a picture of its logo, get a person’s vehicle identification number and send a no-interest letter to the car owner, indicating there is no longer a lien interest from the lien holder.

The perpetrator will then take the letter to a DMV office, pay a fee and get a title without a lien. Or the fake no-interest letter is taken to a title loan store to get a loan against the vehicle. ELT may eliminate these scams because the only way to release a lien is by the credit union sending a transaction directly to the DMV.

The $825 million SAFE Federal Credit Union in Sumter, S.C., made the transition to ELT in 2006 when it was asked to participate in a pilot program, said Mary Anderson, records supervisor. Decision Dynamics Inc. in Lexington, S.C., contacted several financial institutions including SAFE FCU to test its ELT system. The credit union signed on even though it’s not required in South Carolina, she added.

“We’re able to do a search on every title. We know if it’s a salvaged title. And, it’s faster access, which prevents someone from going in and getting a paper title,” she explained.

SAFE FCU processed 5,500 auto loans last year, many of them coming through refinancing, Anderson said. She shudders at the thought of having to process and handle paper titles for all those loans.

“It’s just a lot more efficient. Before, you had to get the exact VIN number, file it, then the release and then you’d have to look for the title,” Anderson said.

SAFE FCU still gets paper titles from other states, but Anderson said she is looking forward to the day when all states will be on ELT.

The greatest potential for fraud is that time period when a DMV conducts its internal processes involving lien holders, said Glenn Thames, president/CEO of Decision Dynamics, one of handful of national ELT providers. That time frame varies from state to state ranging from two to three days to two months in some states, he noted. It’s here that criminals map out their plan.

“They might say ‘today, we’re going to hit this credit union and that one.’ They’ll go down the street getting their loans,” Thames said. “A lot of lenders – credit unions, banks and title companies – take it at face value and provide the loans.”

Thames recalled how one credit union in South Carolina was able to uncover fraudulent title activity at a dealership. While the dealer was charged and ended up going to jail, the credit union lost $50,000 and another was bilked out of $200,000.

In the roughly 20 states that allow it, Decision Dynamics provides VIN inquiry access to its customers, Thames said. The company also does lien alerts so that pending lien holder notifications in a credit union’s system are flagged. Financial institutions can tell if scammers are trying to make the rounds to obtain loans.

Still, some lenders just aren’t sold on ELT, Thames commented.

“Even if you show them the benefits and the cost savings, they just don’t want to change the way they’ve been doing things,” he offered. “Most times, when you go into a credit union that doesn’t participate in ELT and they have 30,000 titles, they’ll probably have 1,000 exceptions [for title issuance]. With a credit union on ELT, that figure goes down into the teens.”